SEMAFO Climbs 40 Percent on Endeavour Mining Deal

In a move that will create a top 15 global gold company, West Africa-focused Endeavour Mining (TSX:EDV,OTCQX:EDVMF) plans to buy SEMAFO (TSX:SMF,OTC Pink:SEMFF) in an all-stock deal. 

The companies entered a definitive agreement after their boards unanimously agreed to the C$1 billion deal. The resulting miner will be a top-tier producer with output surpassing 1 million ounces annually.

With a combined portfolio of six operations and a pipeline of growth projects, the arrangement will also birth one of the continent’s largest gold companies.

“This combination will create one of the leading gold companies, with the largest portfolio of operating assets located entirely in West Africa,” Michael Beckett, Endeavour’s chairman, said in a press release.

Beckett also noted that private precious metals company La Mancha Resources, a key Endeavour shareholder with 28 percent of the company, supports the merger.

“We will also continue to benefit from having La Mancha as a cornerstone shareholder, who will invest US$100 million into to the combined entity and hold a 25 per cent interest on a pro forma basis,” he said.

This isn’t the first talk from Endeavor about a major deal in recent months. In late 2019, the company made a C$2.5 billion proposal to acquire Centamin (TSX:CEE,LSE:CEY).

Centamin rejected the deal, stating it would benefit Endeavour’s shareholders more than Centamin’s.

The new deal between Endeavour and SEMAFO seems to have been well received by both companies.

“This transaction has received strong support from our key shareholders who recognize it as an exciting value creating opportunity to bring together two companies with common values and shared cultures built on decades of successful West African experience,” Benoit Desormeaux, president and CEO of SEMAFO, stated in Monday’s (March 23) release.

In addition to honing in on West Africa, the companies plan to build a North American hub.

“We will leverage our expertise in Montreal to build a technical hub to realize operational, technical and exploration synergies, while advancing studies on our enhanced project pipeline,” Desormeaux added.

Commenting on the proposed merger, Jacob Willoughby, equity research analyst at Red Cloud, pointed out that deal will immediately increase production and reserves for Endeavour, while offering SEMAFO a healthy premium and a way forward from a very difficult situation.

Recent troubles faced by SEMAFO include an attack last November on a convoy headed to its Boungou gold mine in Burkina Faso; it killed 39 people and operations at the mine were suspended after it happened. Work began again at Boungou earlier this year.

When asked if this means a deal with Centamin is off the table, he had the following to say: “If we were in a normal market without a major disruption from the virus outbreak, I would say this purchase of SEMAFO decreases the likelihood of an Endeavour bid for Centamin, but given the massive change in global markets from COVID-19, anything is possible once the six month hold period is lifted.”

Red Cloud expects to see increased merger and acquisition activity in the coming weeks.

“I think there is still room for consolidation in the West African region and amongst several smaller US gold producers in the southwest of the country,” he said. “Lastly, there may be companies that are ‘forced’ to sell themselves because raising debt or equity (to keep themselves afloat) will be nearly impossible for quite some time.”

The merger will now be voted on by shareholders, likely during Q2.

Shares of Endeavour initially slipped 13 percent on Monday, a fall that did not surprise Willoughby.

“Markets are extremely negative at the moment and a company issuing new equity (even for a takeover) is likely to come under intense selling pressure,” he said. “A drop of 13 percent in Endeavour’s share price doesn’t seem unreasonable to me.”

Shares of Endeavour ended down 7.39 percent on Monday, trading for C$20.05, while shares of SEMAFO climbed 39.2 percent to trade for C$2.77.

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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.

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